403(b) Plans: The Best Option is often Avoidance

“It’s a sad state of affairs when workplace retirement plans are so compromised that the best move is to avoid them.” – Ron Lieber

The state of public school teachers’ 403(b) retirement plans is getting worse. This is despite the critically acclaimed five-part N.Y. Times Public Sacrifice series that exposed the sordid world of teachers’ retirement plans.

Ron Lieber summed things up perfectly in his latest article, When Teachers Face the Task of Fixing Their Retirement Accounts.  He states,

“We have essentially forced some of the people who do the most good in the world to turn themselves into part-time plan administrators who do annuity and mutual fund prospectus-reading on the side. Or at least that’s what they need to be if they want something better for themselves.”

Lieber focused on Greenwich, Connecticut Public schools. What he found is commonplace; a menu of insurance companies and broker-dealers offering exorbitantly priced variable annuities and actively-managed mutual funds.

Worse, when Lieber called the individual companies, he was met with radio silence. The one exception was the notorious AXA. Just to show you bad the scene in 403(b) land is, here is a highlight:

“A hat tip to AXA, a provider of often expensive annuities, which you can read more about in one of Tara’s 403(b) articles from last year.   At least AXA engaged, letting me know that the Equi-Vest 201 variable annuity that it offers via a prospectus that runs 132 pages would cost a minimum of 1.81 percent annually in one version and possibly a fair bit more.”

The positive aspect was they “admitted” their 2% plus fees, unlike the other culprits. This is like saying “that guy robbed my house but at least he was polite about it.”

Nothing in this article shocks me. We have seen about every form of financial malfeasance in the several districts we are currently working with. Mr. Lieber was shocked that the companies did not get back to him. I can top this.

Recently, we were working with a young teacher and gave her some questions to ask her financial salesperson. These included the usual about fees and if she was receiving fiduciary advice.

She receives back a 3 Page Letter that was shockingly unclear especially about the “working in her best interest” part. The kicker was she was informed she would be able to speak to her representative but that would not be for a month and a half!

After receiving this nonsense, she immediately signed the paperwork and moved her account over to us.

In 2017, the lack of transparency and basic information regarding teachers’ investment choices is shocking, disturbing, and inexplicable. The fact that many public school teachers are encouraged by honest financial advisors to bypass their plans and contribute much smaller amounts to traditional or Roth IRAs says it all.  Often times this benefit is anything but.  A fiduciary would be obligated to discourage someone from participating in a retirement plan with these subpar choices.

Lieber ends his article with a challenge.  “And to all of you finance executives in Greenwich who had no idea what sort of challenges your teachers were facing until now: How about raising your hands to help those teachers fix this problem?”

We intend to do more than raise our hands. We have some things in the works that are going to surprise a bunch of people. I can make one promise: We are not going to stop until these wrongs have been righted. Our teachers deserve much better than this.







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